Contagions in interconnected power markets

Abstract

PurposeThis paper offers an alternative approach to assessing contagions in price and load in the Australian interconnected power markets. This approach enabled us to identify a high-risk region and assess the direction of contagions from both buyers' and sellers' perspectives.Design/methodology/approachThe author used a multinomial logit method to measure contagions. Having identified the exceedance and coexceedances, the author estimated the multinomial logit coefficients of the covariates explaining the probability of a certain number of coexceedances.FindingsMarket participants should recognize the presence of contagion risk and scrutinize price and load dynamics in the NSW and VIC regions to anticipate any simultaneous extreme changes. Regulators need to stabilize the demand and supply sides in those regions to minimize any possible contagions.Originality/valueThis paper presents a pioneering study investigating contagion in the Australian interconnected power markets.